NOMPU SIZIBA: Investigative journalists (from) amaBhungane have unveiled an exposé on a questionable relationship between disgraced financial services company Regiments Capital and Nedbank that dates back over a decade. According to their findings, Nedbank incentivised Regiments Capital to always pedal its financial products to Regiments public-sector clients, never mind the fact that they were supposed to offer impartial advice. These would include the likes of Transnet, Airports Company South Africa and the City of Johannesburg, among others. amaBhungane estimates that these perverse incentives could have amounted to as much as R95 million for Regiments Capital, and several billions of rands worth of business for Nedbank.
Well, to get more context on these allegations I’m joined on the line by one of the co-authors of the article ‘State Capture: The Case Against Nedbank‘, Susan Comrie. She’s an investigative journalist on Regiments Capital. Thank you so much for joining us, Susan. Perhaps you can give us some context around the relationship that you’ve uncovered between Regiments and Nedbank, and how their fusion has not been as above-board commercially as one would have hoped.
SUSAN COMRIE: Sure. In investigating Regiments, which we’d done for many, many years, we kept seeing Nedbank as being a sort of bank that was kind of providing a lot of the loans, the interest rates swaps. They always seem to be the bank in the room with Regiments. One of the things that we kept wondering was why was it always Nedbank there.
And that sort of question really crystallised when the former Transnet treasurer Mathane Makgatho testified at the Zondo Commission about how she felt that there was an uncomfortably close relationship between Regiments and Nedbank. It turned out that she’d been asking the same question we’d been asking: why was it always Nedbank? And we set out, with the evidence that we had access to, to try and explore and understand that question.
What we found was that a lot of this relationship was kind of crystallised in the commission introduction-fee agreements, which Nedbank and Regiments signed in 2009. That was basically an agreement whereby Nedbank said, look, if you introduce us to new business, we will pay you a fee.
Now the problem was that very often Regiments was sitting there as the advisor to the public-sector clients (and was) meant to be providing them with independent advice, but yet there was this temptation in the form of this agreement, which says if we are the bank that’s picked, if the client agrees to take our interest-rate swaps or our loans, you, Regiments, will get a massive fee. Very often the problem was that these fees ultimately paid by the public-sector clients were paid by including a margin in the all-in rate that the public-sector clients would not all be aware of, that they were the ones paying those fees.
In many instances the (public-sector clients) weren’t even aware of the fees, and that the rate that they were paying was higher than the industry.
NOMPU SIZIBA: One of the worrying things that you noticed is that Regiments would push Netbank’s products, regardless of whether they were actually in the need or the interest of their public-sector clients.
SUSAN COMRIE: Well, part of the problem with the commission-fee agreement is that Regiments were there as the advisor to the client, so they would be getting an advisory fee for providing some form of basic advice to the client.
Now, the deal was, if they pushed an interest-rate swap, for instance, whether that came from Nedbank or from another bank that had a similar commission-fee agreement with Regiments, if the client agreed to take that interest-rate swap or, for instance, if the client agreed not just to one interest rate, but to a sort of flurry of interest rates, one after another over a period of a couple of years, Regiments was able to collect a fee almost like a toll at each transaction.
And that was a fundamental problem, because it incentivised Regiments to push a particular type of transaction, to persuade clients to enter into transactions that maybe weren’t always in the client’s best interests.
I think we really saw that with one of the cases we highlighted with Absa, where they were talked into a CPI swap that ended up costing them a vast amount of money to get out of when they realised just one year in, the swap was very problematic.
NOMPU SIZIBA: So, from your digging did you find that there was very little relationship between Regiments and other banks, for example? You touched on Absa, but what about the other banks?
SUSAN COMRIE: The interesting thing for us is that we were aware of Regiments having entered into similar agreements with Absa, and also with Standard Bank. We could see that there was one transaction where Standard Bank was involved and where Standard Bank paid Regiments I think around R22 million in fees. But, as far as we can tell, that was the only transaction that was done with them through this sort of introduction-fee agreement, whereas Nedbank had a much longer history with Regiments and there were vast numbers of transactions that went through banks.
NOMPU SIZIBA: Now, in all the heavy-lifting investigative work that you’ve done on this story, who were the individuals who surface as being behind this secret partnership between Regiments and Nedbank?
SUSAN COMRIE: The main name that keeps coming up is Eric Wood, the former Regiments director. Many people will remember that he went on and split off half of Regiments and turned that into Trillian with Salim Essa. Most people will have encountered him when Trillian partnered with McKinsey at Eskom, which really predates that whole history. This was when he was still very much in the fold and Regiments was setting up a number of these deals.
There are also a couple of Nedbank employees that we’ve mentioned within the stories who were kind of his points people within the bank. But it is very difficult for us to tell to what degree they were. We’ll put it this way: there doesn’t seem to be any suggestion that they were acting, that they had like gone rogue or anything. In all of our discussions with Nedbank, they have never tried to sort of distance themselves from the behaviour of their employees.
In fact, they’re still saying, yes, we paid the fees, but they believe that that the fees were justified, that they weren’t as problematic as we believe they were.
NOMPU SIZIBA: Now, in your practice as ethical journalists, you always will give the right to reply when you’re doing your investigation. So, when you approached Nedbank, what transpired there? You also indicate that they no longer wish to engage with you.
SUSAN COMRIE: Yes, it was an interesting process for us. We actually started looking at the story back in 2016. One of my colleagues had started raising questions with Nedbank in 2016 about the relationship with Regiments. At the time they weren’t willing to engage with us. Something changed, though, and in 2018 they agreed to do two on-the-record interviews with us. At that stage our investigation was really in its infancy, and we were just starting to understand the evidence. So they did these two interviews with us.
We went away, got busy on other projects and, when we picked up again last year, in 2020, when we felt that we had a really concrete picture of what had happened, we went back to Nedbank and asked them if they would re-engage with us, and … pick up where we left off.
At that point, they said they weren’t willing to do that. But we were very clear in not just sort of sending questions to Nedbank after that, even after they said they wouldn’t engage with us. We sent incredibly detailed questions.
We actually sent 35 pages of questions, laying out the evidence that we could see, the conclusions we were likely to draw from that, and challenging them to say, look, if you disagree with us, we need you to explain why you disagree. They chose not to engage with individual questions.
They provided a sort of stylised statement. It’s very similar to the one that that’s published in full with our story.
You’ve asked to read the full Nedbank statement. Essentially, as we’ve engaged them, they have provided small amounts of information. But for the most part, they’ve not been willing to really get into the mud with us and answer those really detailed questions. They seem to have taken a position and stuck very vigorously to that position for whatever reason.
NOMPU SIZIBA: Susan, in your article, you seem to suggest a ballpark figure of about R95 million that Regiments Capital will have benefited from its relationship or its perverse incentives with Nedbank. Are you then able to come up with a figure of the kind of billions that Nedbank will have made from these transactions?
SUSAN COMRIE: No. Look, it’s a very difficult thing to calculate, even in terms of calculating Regiments’ fees. Nedbank wasn’t willing to confirm exactly how much had been paid to Regiments, how much is still due to be paid in to Regiments in future. So we were left to rely on invoices that we could see on spreadsheets that Nedbank themselves had prepared for me, for Regiments to say this is what the fees were due to. In terms of the fees that Nedbank will earn on some transactions, we can see what their margin would be. But a lot of these transactions haven’t been completed yet. Many of these transactions will still run for many years to come, so how much Nedbank earns will also depend on how interest rates change.
One of the illustrations that we’ve put in the story is to say, look, we know that Transnet – the interest-rate swaps where Nedbank was involved, Transnet has lost X amount to date. And we said it’s very difficult to say how interest rates will change. If they remain unchanged, this is what the picture looks like for Transnet. It looks very, very bad.
It looks like potentially (Transnet) could be losing R4.5 billion by 2030.
But, as I said, we don’t know how interest rates will change, and those are moving targets.
NOMPU SIZIBA: A couple of questions before I let you go. To your knowledge, do Regiments and Nedbank still have a relationship of sorts? And, following the publication of your article yesterday, have you had any reaction at all from Nedbank? Are you expecting one?
SUSAN COMRIE: It’s an interesting question as to whether they still have a relationship. What we were able to see was that in theory the payments should still be flowing from Nedbank to Regiments on some of these historical transactions. The last time that Nedbank gave us a response, although they stopped paying new fees to Regiments in around 2015, they still carried on making historical payments on the first deals to Regiments. And in theory, both payments should still be flowing. We don’t know whether in light of everything that’s happened, in light of information that’s come to light, whether Nedbank has taken a decision to halt some of those payments. We don’t have perspective from the bank on that. And in terms of the responses we had from Nedbank, they did send us a statement that they seem to have been circulating internally about their response to our story. It is very much in line with the statement that they gave us several times last year. It’s got all of the same sort of major strokes, major positions. So we haven’t actually added that to our website because it would really be a repetition of what they’ve previously said.
In terms of whether we think we’ll be hearing from them, we would welcome them if they take a decision that they would like to engage with us. We would certainly welcome that. Rather than engaging with us, I suspect that they might rather be looking to things like the Zondo Commission and whether they’re going to have to answer there. That might be their priority, understandably.
There’s also the question of Transnet’s investigation – these interest rate swaps and being advised that they should perhaps approach the court and have the interest rate swaps set aside. So those are bigger issues for Nedbank presumably.
NOMPU SIZIBA: Susan, thank you very much. Good talking to you. Susan Comrie is an investigative journalist at amaBhungane.